Think for a moment about what would happen if you upended the whole system of financial incentives for hospitals.
What if you said goodbye to what's known as fee-for-service, where hospitals are paid for each procedure, each visit to the emergency room, each overnight stay? What if, instead, hospitals got a fixed pot of money for the whole year, no matter how many people came through the door?
Would a change like that make hospitals rethink the way they care for patients? Would they think more creatively about how to keep people healthier so they wouldn't come to the hospital at all?
Those very questions are being asked in Maryland, where an experiment in how hospitals are paid has been underway since early last year.
The experiment came about under an agreement between the state of Maryland and the Centers for Medicare and Medicaid Services. It was championed by Dr. Joshua Sharfstein, who was then Maryland's Secretary of Health and Mental Hygiene.
Sharfstein came into office in 2011, around the time the Affordable Care Act was being rolled out. Along with the expansion of health coverage for the uninsured, there was a lot of talk about improving health outcomes while cutting costs. The ACA created opportunities to test new ways of paying for and delivering care. Maryland was poised to act.
That's because for nearly 40 years, Maryland had a unique system that set the rates, or the prices, that hospitals charged. Those rates were essentially the same for Medicare as they were for private insurers.
In other states, Medicare pays less than private insurers, Sharfstein says. Medicare's participation in this system was contingent upon Maryland keeping price growth down.
But in recent years, the system was starting to crumble. Prices were rising, and overall expenditures were also up, as hospitals tried to make up in volume what they were losing on price. Maryland had some of the highest hospital readmission rates in the country.
"There were incentives built into the old system for volume," Sharfstein says. "If you can only make $2 on a pair of pants, you have to sell a lot of pants."
With prices on the rise, Medicare's continued participation was in question. Rather than scrap the whole system, Sharfstein and his colleagues promised Medicare that Maryland would find a way to keep overall expenditures down while improving the quality of care and outcomes for patients.
The plan hinged on ending fee-for-service payments to hospitals and moving to something called global budgeting. Instead of being paid per admission, hospitals would get a set amount of money for the entire year for patient care, regardless of how many MRI tests, ER visits or hip replacements there were.
At the end of the year, if there was money left over, the hospitals could keep it.
"Whereas before, hospitals could really only make money by keeping their beds filled, now they can actually do better if their community is healthier and they're preventing admissions," Sharfstein says.
The state tested the approach in 10 rural hospitals.
Those hospitals had to think in a new way about how to serve people outside their wards and ERs. The hospitals hired care coordinators to check with patients after they were discharged to make sure they were taking their medications and eating right, for example.
Some hospitals created primary care centers in their communities, so patients had an easier way to see a doctor instead of making repeated trips to the emergency room. The hospitals also looked to partner with community groups working on issues as basic as housing.
The pilot worked, and in January 2014, after 18 months of negotiations between Maryland and the federal authorities, global budgeting went statewide.
It was voluntary for hospitals, but within six months every hospital in the state had signed up.
Now, nearly two years into the five-year agreement, the Centers for Medicare and Medicaid Services says that hospitals are well on track to hit targets. Under the deal, Maryland has to save $330 million for Medicare over five years and reduce hospital readmission rates all while improving the overall health of residents.
The Maryland Hospital Association says in the first year alone, cost savings topped more than $100 million, and hospital readmissions were down at a rate faster than the national average.
"To a certain extent in the United States of America, a healthier community may mean a financial problem for the hospital, but no longer is that the case in Maryland," says Sharfstein. "And that creates a great opportunity for public health."
That's because a hospital's bottom line now is directly connected to its ability to reduce preventable illnesses, a core mission of public health.
"Is it a game changer? Probably," says Dr. Leana Wen, health commissioner in Baltimore. "It definitely is a game changer in concept. Because before, we were reimbursing for everything that we did to patients, not actually the care that we were providing to help patients not end up in the hospital in the first place."
Wen wants to come up with a city-wide strategy that would bring together hospitals, treatment providers, community groups and others. She believes getting everyone on board is key to attracting state, federal and private dollars for projects that would yield big savings. And if hospitals see the dollars flowing, she hopes they'll chip in too.
One such project is a stabilization center, a place where people who are drunk and high on the street can go to sober up and get into treatment.
"If a hospital were to agree to provide nurses and nurse practitioners, that would be fantastic," Wen says. "Perhaps they provide funding. Perhaps they provide transportation."
In return, the city would be relieving hospitals of a costly population of patients – people who routinely show up in emergency rooms with underlying substance abuse and mental health problems that cannot be addressed on the spot.
The city is also working on some data-driven projects that Wen and others believe hospitals would also be willing to invest in. One is a database that identifies "high utilizers," the people who turn up in emergency rooms most often or call 911 repeatedly. Another is a Web-based dashboard that will show in real time the availability of mental health and substance addiction treatment slots across the city.
Dr. Cynthia Buchman Webb, chair of the emergency department at MedStar Union Memorial Hospital, says having such a tool would be a big help for hospitals, which often struggle to figure out where to send patients.
"Right now, that is the problem," she says. "It's on all of our providers at every different institution to do that ourselves, to make sure we have the most up-to-date information. That's where Baltimore City can really play a big role."
At the moment, the health department has a $30,000 grant to start building that dashboard, but more money and more buy-in from providers are needed to make it work.
For the stabilization center, the health department has secured just over $3.5 million from the Maryland state legislature to cover capital costs, but they need another $3.5 million to operate it. They're piecing together funding from a number of sources and hope hospitals will be among them.
NPR and All Things Considered will continue reporting from Baltimore in the coming months, checking in with Leana Wen and her team. Stay tuned for future stories.
AUDIE CORNISH, HOST:
We're going to turn now to Dr. Leana Wen. She's the Baltimore City health commissioner we began following after the death of Freddie Gray, and she's got big dreams for the city, dreams like putting telemedicine into every Baltimore school, getting a home visitor out to every teen mom and creating what she's calling a stabilization center, a place where people who are drunk and high on the street can sober up and get into treatment. So how do you pay for those big dreams? How do you heal a city on a budget?
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LEANA WEN: To be honest, that process isn't going as smoothly as I had hoped.
CORNISH: This Dr. Wen from an audio diary she keeps for us.
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WEN: Immediately after the arrest, we were bombarded with requests from people to help...
CORNISH: Private foundations, state and federal agencies, even the White House. Leana Wen says they've had dozens of follow-up meetings, some of which have yielded modest sums. Others haven't really gone anywhere.
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WEN: I know that members of my team have felt that this is just one more conversation that we're having, one more call or one more meeting. And it's unclear where this is leading, and I just worry that the window of opportunity may be closing.
CORNISH: Now, she knows money isn't going to appear overnight, so she's also looking in other places, and one in particular seems promising. It has to do with an experiment that began last year in Maryland, involving hospitals and how hospitals make money. I want you to think for a moment about what would happen if you upended the whole system of financial incentives for hospitals. What if you said goodbye to what's known as fee for service, where hospitals are paid for each procedure they carry out, each visit to the ER, each overnight stay? What if, instead, they got a set amount of money for the whole year, no matter who walked through the door? Would it make hospitals rethink the care they're giving? Would they think more creatively about how to keep their patients healthier? Well, those very questions are being asked in Maryland, thanks in large part to this guy.
JOSHUA SHARFSTEIN: My name is Joshua Sharfstein. I'm the associate dean for public health practice and training at the Johns Hopkins Bloomberg School of Public Health.
CORNISH: Ten years ago, Sharfstein had Dr. Wen's job as Baltimore's health commissioner. He later went on to a bigger gig as secretary of health and mental hygiene in Maryland. This was around the time Obamacare was being rolled out, and with it came a lot of talk about improving health outcomes while cutting costs. Sharfstein spent 18 months negotiating with the federal agency that oversees Medicare and Medicaid, and when it was over, Maryland became the first state in the U.S. to end fee-for-service payments to hospitals. And they instituted something called global budgeting. The system had already been piloted in 10 rural hospitals, and those hospitals liked it.
SHARFSTEIN: At the start of the year, they knew how much they would get paid - didn't matter how many MRI tests, how many admissions, how many ER visits. They knew their budget. They knew, therefore, that they could make a margin by keeping their community healthier.
CORNISH: So under this system, you get a pot of money. You are told this is the money you get. It's like allowance.
CORNISH: And this is all you're going to get. And so now it's up to you to make the most out of that allowance.
SHARFSTEIN: Right, and whereas before, the hospitals could really only make money by keeping the beds filled, now, they could actually do better if their community is healthier and they were preventing admissions.
CORNISH: Because you get to keep the money, even if more people don't show up.
SHARFSTEIN: That's exactly right.
CORNISH: So how do hospitals keep people from showing up? Well, the hospitals in the pilot hired care coordinators, people who followed up with the patients to see, are they taking their meds, are they eating right? Some hospitals created primary care centers in the community to give patients an easy way to see a doctor without making repeated trips to the ER. And some found ways to support community groups working on issues as basic as housing, making sure people had a safe place to live. All right, so I get how this is supposed to work, but there was something still troubling me.
Now, what if people hear this and think, maybe my doctor won't give me the same level of service because now I'm not worth it to him?
SHARFSTEIN: Think of it this way - if you have a problem with your roof, and you pay someone to fix it, and they come and fix it, and there's still a leak. And they come out again, and they go, oh, we're going to do the whole job again. You're going to pay us all again, and you pay them. And then the same thing happens, and you do it again and again and again and again. That doesn't make any sense. But if you have a contract that says you're going to pay them, and they're going to take care of the roof, no matter how many times it breaks, that they're responsible for the work that they do, then you're not entitled to anything less.
CORNISH: In other words, your roof better not leak or else they pay. Likewise, no matter how many times you show up in the ER, even if it's every week, the hospital is not raking it in.
SHARFSTEIN: People aren't rewarded, essentially, for care that just keeps people cycling in and out of the hospital.
CORNISH: This global budgeting experiment went statewide in January 2014. It was voluntary, but within six months, every hospital in the state had signed up. The Maryland Hospital Association says, in the first year alone, cost savings topped more than $100 million, and the number of re-admissions - patients who return for another hospital stay within 30 days - well, it dropped at a rate faster than the national average. So what does all this have to do with Leana Wen and her dreams for Baltimore? Well, Joshua Sharfstein calls global budgeting a game-changer for public health.
WEN: Is it a game-changer? Probably.
CORNISH: Here's Dr. Wen.
WEN: I'm hopeful that is it. It definitely is a game changer in concept because the concept of global budgeting is that before we're reimbursing for everything that we did to patients, not actually the care that we're providing to help patients not end up in the hospital in the first place.
CORNISH: Which means, for hospitals, there's now an economic argument for public health. For the first time, a hospital's bottom line depends on its ability to reduce preventable illnesses. And that's an opening for Dr. Wen, whose day-to-day work is all about reducing preventable illnesses. She's proposed a citywide strategy. Getting everyone on board, she says, is key to attracting state, federal and private dollars for projects she thinks will bring in big savings. And if hospitals see the money coming in, maybe they'll chip in, too. So remember that stabilization center idea, where people can sober up and get into treatment? Well, hospitals could invest in that.
WEN: If a hospital were to agree to provide nurses and nurse practitioners, that would be fantastic. Perhaps they provide funding. Perhaps they provide transportation.
CORNISH: In return, she says, the city would lighten their load, caring for costly patients whose problems can't be solved at the hospital anyway, problems like mental illness and addiction. But here's the thing - Maryland is already nearly two years into this five-year experiment, and many hospitals have already started doing their own thing - hiring care coordinators and so on. So Dr. Wen has to work hard for buy-in. On a recent morning, she and her team gathered more than a hundred hospital leaders, treatment providers, community health advocates and others.
WEN: Good morning, everyone. We are really delighted to welcome you to this convening.
CORNISH: They talked about how the stabilization center would work, and they previewed some other projects that folks here might just be interested in funding with all those dollars they'll be saving. Here's one example - a database of high utilizers, the frequent fliers of emergency rooms. Cynthia Buchman-Webb chairs the emergency department at MedStar Union Memorial Hospital, and she says all hospitals could benefit from that data.
CYNTHIA BUCHMAN-WEBB: There's a much right now, so much duplication of efforts, and we know it. There's a patient that we'll have at MedStar Union Memorial that you know was probably somewhere else within the previous week. Nobody - there is not one consistent way to be able to share that data yet.
CORNISH: And she's also excited about another project presented, a web-based dashboard that would show, in real-time, where people can go for substance abuse and mental health treatment.
BUCHMAN-WEBB: If they can really get that dashboard where, literally, you will have - OK, where are the open slots? That would be ideal because right now that is the problem. It's on all of our providers at every different institution to do that ourselves to make sure we have the most up-to-date information. That's where Baltimore City can really play a big role.
CORNISH: That's if they can get it built. The health department has a $30,000 grant to get it going, but clearly they need more. As for the stabilization center, they've got just over $3.5 million from the state legislature to build the place, but they need another $3.5 million to operate it. Leana Wen does have an idea of how they'll piece together the money for this dream. She's determined to see it open next year. And if and when it does, we'll be there.
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CORNISH: For a more detailed history of how global budgeting came about in Maryland, visit our website, npr.org. Transcript provided by NPR, Copyright NPR.